Correlation Between Stone Ridge and Stone Ridge

Can any of the company-specific risk be diversified away by investing in both Stone Ridge and Stone Ridge at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Stone Ridge and Stone Ridge into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Stone Ridge High and Stone Ridge Diversified, you can compare the effects of market volatilities on Stone Ridge and Stone Ridge and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Stone Ridge with a short position of Stone Ridge. Check out your portfolio center. Please also check ongoing floating volatility patterns of Stone Ridge and Stone Ridge.

Diversification Opportunities for Stone Ridge and Stone Ridge

0.89

Correlation Coefficient

Stone Ridge  Stone Ridge

Very poor diversification

The 3 months correlation between Stone and Stone is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Stone Ridge High and Stone Ridge Diversified in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Ridge Diversified and Stone Ridge is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Stone Ridge High are associated (or correlated) with Stone Ridge. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Ridge Diversified has no effect on the direction of Stone Ridge i.e., Stone Ridge and Stone Ridge go up and down completely randomly.

Pair Corralation between Stone Ridge and Stone Ridge

Assuming the 90 days horizon Stone Ridge is expected to generate 1.34 times less return on investment than Stone Ridge. But when comparing it to its historical volatility, Stone Ridge High is 2.03 times less risky than Stone Ridge. It trades about 0.92 of its potential returns per unit of risk. Stone Ridge Diversified is currently generating about 0.61 of returns per unit of risk over similar time horizon. If you would invest  1,125  in Stone Ridge Diversified on September 15, 2024 and sell it today you would earn a total of  21.00  from holding Stone Ridge Diversified or generate 1.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Stone Ridge High  vs.  Stone Ridge Diversified

Stone Ridge High

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge High are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Stone Ridge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Stone Ridge Diversified

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Stone Ridge Diversified are ranked lower than 13 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Stone Ridge is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Stone Ridge and Stone Ridge

The main advantage of trading using opposite Stone Ridge and Stone Ridge positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Stone Ridge position performs unexpectedly, Stone Ridge can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Stone Ridge will offset losses from the drop in Stone Ridge's long position.

The idea behind Stone Ridge High and Stone Ridge Diversified pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.